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Supply chain design under uncertainty using sample average approximation and dual decomposition

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  • Schütz, Peter
  • Tomasgard, Asgeir
  • Ahmed, Shabbir

Abstract

We present a supply chain design problem modeled as a sequence of splitting and combining processes. We formulate the problem as a two-stage stochastic program. The first-stage decisions are strategic location decisions, whereas the second stage consists of operational decisions. The objective is to minimize the sum of investment costs and expected costs of operating the supply chain. In particular the model emphasizes the importance of operational flexibility when making strategic decisions. For that reason short-term uncertainty is considered as well as long-term uncertainty. The real-world case used to illustrate the model is from the Norwegian meat industry. We solve the problem by sample average approximation in combination with dual decomposition. Computational results are presented for different sample sizes and different levels of data aggregation in the second stage.

Suggested Citation

  • Schütz, Peter & Tomasgard, Asgeir & Ahmed, Shabbir, 2009. "Supply chain design under uncertainty using sample average approximation and dual decomposition," European Journal of Operational Research, Elsevier, vol. 199(2), pages 409-419, December.
    • Handle: RePEc:eee:ejores:v:199:y:2009:i:2:p:409-419
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    References listed on IDEAS

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    1. R. T. Rockafellar & Roger J.-B. Wets, 1991. "Scenarios and Policy Aggregation in Optimization Under Uncertainty," Mathematics of Operations Research, INFORMS, vol. 16(1), pages 119-147, February.
    2. A. M. Geoffrion & G. W. Graves, 1974. "Multicommodity Distribution System Design by Benders Decomposition," Management Science, INFORMS, vol. 20(5), pages 822-844, January.
    3. C Lucas & S A MirHassani & G Mitra & C A Poojari, 2001. "An application of Lagrangian relaxation to a capacity planning problem under uncertainty," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 52(11), pages 1256-1266, November.
    4. Santoso, Tjendera & Ahmed, Shabbir & Goetschalckx, Marc & Shapiro, Alexander, 2005. "A stochastic programming approach for supply chain network design under uncertainty," European Journal of Operational Research, Elsevier, vol. 167(1), pages 96-115, November.
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